Scottish government bodies must include a PBA in tender documents for contracts commencing procurement procedures from 31st October 2016 with an estimated award value of at least £4,104,394 for building projects and £10 million for civil engineering projects.
Finance secretary Derek Mackay said: “This is an important milestone in the government’s commitment to improving cashflow for smaller firms. The PBA guidance translates trial programme experience into a simplified common approach with practical resources for implementation in Scottish Government projects. We urge all other organisations involved in commissioning work on Scotland’s infrastructure to use PBAs.”
The move has been welcomed by trade associations.
Specialist Engineering Contractors’ (SEC) Group Scotland chairman Eddie Myles said: “SEC Group Scotland has been the leading exponent of PBAs since they are the most effective method for ensuring regular and secure payments to construction supply chains, especially SMEs.”
Newell Mc Guinness, managing director of the Scottish Electrical Contractors' Association (Select), said: “Poor payment practices are the biggest killer of productivity and growth in Scottish construction. PBAs will help curb abuse and thus enable small firms to deliver to their full potential.”
Fiona Hodgson, managing director of the Scottish & Northern Ireland Plumbing Employers’ Federation, added: “Scottish government is to be congratulated. Dealing with poor payment practices has to be the number one priority for construction. I look forward to the time when we can half the threshold for using PBAs.”
The Building Engineering Services Association (BESA) also welcomed the news. BESA chief executive Paul McLaughlin said: “The Scottish government should be roundly praised for taking a bold step to remove one of the barriers to efficient project delivery."
PBAs are a cash disbursement model that allows money to be ring-fenced in bank accounts from which payments are made directly to suppliers. This reduces the risk of contractor insolvency and the consequent disruption to projects. It also cuts out much of the additional cost of risk pricing and debt management associated with having multiple layers of payment within the contractual chain.
PBA payments can be made within as little as 12 days and, once in the account, the monies are protected from upstream insolvencies and unfair delays. Highways England and the Environment Agency have been using this method for some time and, on average; ‘Tier 3’ subcontractors on their projects are paid within 19 days.
“Security of payment allows firms to invest in the skills and processes they need to improve productivity and fund growth,” added Mr McLaughlin. “By improving cash flow through the supply chain, project clients can also be assured of a more cohesive, harmonious and, therefore, efficient project process.”
He also called for the introduction of digital payment platforms as the next step in the process of “remedying endemic industry payment problems”. This would give SMEs the reassurance of transparent and legislatively compliant payment processes supported by electronic banking; allowing them “to plan for the future with greater confidence and commercial stability”, he said
Scotland’s First Minister Nicola Sturgeon was an early supporter of PBAs and launched a government trial of the payment mechanism in 2013 when she was deputy to Alex Salmond.